Transparency a Must for LA’s Underfunded Pension Plans

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LA WATCHDOG-The People’s Republic of Santa Monica is showing its fiscal responsibility by seeking to hire an independent consultant to review and analyze its unfunded pension liability of $461 million and develop alternative solutions on how to eliminate this “debt” over the next decade.

This is reminiscent of the recommendation of the LA 2020 Commission to “establish a Commission for Retirement Security to review the City’s retirement obligations in order to promote an accurate understanding of the facts.” It was also “tasked with making concrete recommendations on how to achieve equilibrium on retirement costs” within six years.

But unlike Santa Monica, this excellent recommendation, endorsed by City Council President Herb Wesson at a press conference in 2014, went nowhere. Rather, it was buried in the bowels of City Hall as Mayor Eric Garcetti, the City Council, and the leaders of the campaign funding unions did not want us to know how the ever-increasing pension contributions were eating our lunch and crowding out basic services such as the repair and maintenance of our streets and parks and services for the homeless.

Specifically, why haven’t Paul Krekorian, the Chairman of the Budget and Finance Committee, and Paul Koretz, the Chairman of the Personnel Committee, placed this item on the agendas of their respective committees for approval?

And why haven’t the Commissioners of both the Los Angeles City Employees’ Retirement System and the Los Angeles Fire and Police Pension Plans taken the initiative to provide us with a detailed financial analysis of their respective plans?

The City’s two pension plans (Los Angeles City Employees’ Retirement System and Los Angeles Fire and Police Pension Plans) are major contributors to the Structural Deficit, where expenditures, primarily personnel costs, increase faster than revenues. This year, the Annual Required Contribution of $1.2 billion consumed 20% of the General Fund budget and is projected to grow at a significantly faster rate than revenues.

Furthermore, this contribution is understated by at least $500 million a year if a more realistic investment rate assumption of 6¼% is used.

The unfunded pension liability of these two plans is $15 billion. And while the City’s spinmeisters may discount this liability and the 71% funded ratio, the truth is that these two funds should be 120% funded given the bull market we have been experiencing so that these plans remain fully funded when the market tanks.

There are many mitigating solutions, including allowing employees to participate in defined contribution plans like the popular plans offered by the University of California, increasing the retirement age to 65 (still lower than Social Security), and limiting the cost of living adjustments.

At this point, we are just asking for the facts, a basic review and analysis of the City’s two pension plans, and a series of alternative solutions. Yet, Mayor Garcetti, City Council President, and Councilmen Paul Krekorian and Paul Koretz are doing their best to bury the facts.

Is City Hall afraid of the truth?

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: lajack@gmail.com.)